'Monumental' Piracy Ruling Hits Hollywood

A federal court judge has surprised the entertainment industry by denying a request for a summary judgment that would shut down Grokster and Streamcast Networks.

The precedent-setting ruling Friday by U.S. District Court Judge Stephen Wilson is a major blow against a pillar of the film and music business’ strategy against online piracy, which is to hold the underlying technology companies responsible.

“It is undisputed that there are substantial noninfringing uses” for Grokster and Streamcast’s Morpheus, Wilson wrote in his decision. He cited Sony Corporation of America vs. Universal City Studios, the 1984 milestone usually referred to as the Betamax case and noted that these peer-to-peer services are used for such legal activities as “distributing movie trailers, free songs or other non-copyrighted works,” including “the works of Shakespeare.”

Wilson agreed that illegal downloading was taking place but determined that the technology could not be held liable for how it is used.

“It’s monumental,” Grokster president Wayne Rosso said. “This man has changed show business and copyright law.”

The Motion Picture Assn. of America and the Recording Industry Assn. of America stated their intention to appeal the decision, which Wilson wrote for the Central District of California in Los Angeles.

Courts in previous legal actions against such peer-to-peer services as Scour and Napster have been generally inclined to agree with the entertainment industry’s assertion that the technology abets and contributes to infringement.

However, Wilson drew “a seminal distinction” between Napster and the decentralized nature of the defendants, saying that unlike their notorious predecessor, “neither Grokster nor Streamcast provides the ‘site and facilities’ for direct infringement.”

He added that file sharing could continue even if the defendants “closed their doors and deactivated all computers within their control.”

MPAA president and CEO Jack Valenti thought that distinction irrelevant. “The Napster case is very clear, and we think that Napster applies here,” he said.

Rosso strongly disagreed. “This is the exact point of law that was never settled when Napster went under,” he said. “The RIAA, in their campaign of misinformation, was leading everyone to believe that P2P companies are liable, but in point of fact, it was never addressed in a United States court of law before.”

Last month, a Dutch appeals court decided in favor of peer-to-peer service KaZaA when it ruled in Buma Semtra vs. KaZaA that the technology should not be held liable for the fact that its users were infringing on copyrights. Said Rosso: “How many more need rule in our favor before they get the message?”

As to the Betamax references, Valenti said they weren’t applicable because current technology far surpassed what that ruling could have foreseen when it allowed time-shifting. “The difference between analog and digital is the difference between lightning and the lightning bug,” he said.

MPAA counsel David Kendall added that videotape machines do not aid in distribution.

But Wilson’s ruling compared Grokster and Streamcast to companies that sell home video recorders or copier machines, both of which are sometimes used to infringe copyrights.

RIAA chairman and CEO Hilary Rosen found something to be happy about in the decision, namely that Wilson emphasized that sharing copyrighted files without permission was illegal and that “individual users are accountable.”

She disagreed with the ruling, however, saying in a statement: “Businesses that intentionally facilitate massive piracy should not be able to evade responsibility for their actions.”

Joseph Schleimer, an entertainment lawyer who specializes in copyright, did not expect the ruling to survive the appeals.

“The decision is based on technology, not copyright law,” he said. “Look for the copyright industries to come back with an aggressive technological response. And it won’t be pretty.”

Valenti agreed. “We have an excellent chance of obliterating this ruling on appeal,” he said.

Rosso predictably took the opposing view. “Wilson wrote a brilliant decision that I think will stand,” he said.

Added Schleimer: “If this decision is upheld on appeal, then any clever technology company can build a global business on stolen entertainment materials, and you can kiss the music and film industries goodbye.”

Friday’s ruling does not apply to fellow defendants KaZaA or Sharman Networks.